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A witness to today's shooting tragedy in Ashburton said he saw a staff member from Work and Income run from the shop after the shooter yelling "You bastard, you've blown her to bits".

Police have arrested the man suspected of shooting dead two Work and Income workers and a third critically injured. Homeless man Russell Tully, known as John, 48, was found on a rural property near Lake Hood this afternoon. No shots were fired but he suffered dog bites. Ashburton had been in lockdown while police conducted a massive search for Tully.

At about 10am today a male entered the Work and Income office in the mid-Canterbury town and killed two people, with a third seriously injured.

The witness, who didn't want to be named, said he stopped his van in the middle of the road when he saw a man in a black balaclava with a shotgun on his back walk in to the Winz office.

Two other people who had just left the Winz building saw a man wearing a balaclava and carrying a shotgun enter the premises.

Soon after they heard two shots.

A woman, also believed to be a staff member ran out and shouted at them to call the police, before running into the nearby medical centre.

Watching police activity from behind the police cordon local woman Rebecca Hopkinson, 35, said she was too scared to stay at her home on the other side of the riverbank where police were searching for the gunman.

"There's lots of hiding spots in the river. I live alone on a farm I've got a lot of neighbours around but even with the doors locked, the fact he's got a sawn off shotgun and he'll be pretty desperate."

Annie Smith of Ashburton's Childs Play Preschool said they were keeping around 40 children aged from 1 to 5-years-old away from the windows, had drawn the blinds, and had a security guard patrolling the building.

"We are so close to the river and the area he is supposed to be in."

Police have named John Henry Tully as a person of interest after two people were killed and another seriously injured in a shooting at the Ashburton Work and Income office this morning. Canterbury District Superintendent Gary Knowles said Tully may have shaved his head as Ashburton remained in lockdown while police hunt for the gunman.The man, who was reportedly wearing a black balaclava and carrying a shotgun, reportedly took the time to chain up his bicycle before going into the office just after 10am.

Ms Smith said some parents had come to collect their children, including one woman who had been visiting the Winz office at the time of the shooting.

"She came in, and it hadn't hit her until she came here and she saw Vince, our security man, outside. And then it suddenly hit her how serious it was.

"She said it was like being in a movie, she just didn't get it. And then she charged out and she just wanted to be with her kids."

Ms Smith said the children were too young to understand what was going on, unlike their parents.

"There is quite a bit of emotion and really frightened people. All we can do at this end is assure them that their children are safe."

"Hopefully we'll all get home tonight...it has definitely wrecked the lives of a few families around here today."

Nigel Heney, the owner of Columbus Coffee on Moore St, said the business was continuing to trade and customers were still coming in and out.

"I'm in Christchurch but I just talked to my manager and she said it had been steady...and there are lots of customers asking questions.

"Apparently The Warehouse is in lock-down though...in different parts of the town you are not allowed to move, the helicopter is flying around...if they don't find him by night it will be pretty scary."